2013-31153. Service Corporation International, and Stewart Enterprises, Inc.; Analysis of Agreement Containing Consent Orders To Aid Public Comment

AGENCY:

Federal Trade Commission.

ACTION:

Proposed Consent Agreement.

SUMMARY:

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The attached Analysis of Agreement Containing Consent Orders to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent orders—embodied in the consent agreement—that would settle these allegations.

DATES:

Comments must be received on or before January 22, 2014.

ADDRESSES:

Interested parties may file a comment at https://ftcpublic.commentworks.com/​ftc/​scistewartconsent online or on paper, by following the instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION section below. Write “Service Corporation International and Stewart Enterprises, Inc.—Consent Agreement; File No. 131 0163” on your comment and file your comment online at https://ftcpublic.commentworks.com/​ftc/​scistewartconsent by following the instructions on the web-based form. If you prefer to file your comment on paper, mail or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Jill Frumin, Bureau of Competition, (202-326-2758), 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Pursuant to Section 6(f) of the Federal Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing a consent order to cease and desist, having been filed with and accepted, subject to final approval, by the Commission, has been placed on the public record for a period of thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for December 23, 2013), on the World Wide Web, at http://www.ftc.gov/​os/​actions.shtm. A paper copy can be obtained from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., Washington, DC 20580, either in person or by calling [phone].

You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before January 22, 2014. Write “Service Corporation International and Stewart Enterprises, Inc.—Consent Agreement; File No. 131 0163” on your comment. Your comment—including your name and your state—will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at http://www.ftc.gov/​os/​publiccomments.shtm. As a matter of discretion, the Commission tries to remove individuals' home contact information from comments before placing them on the Commission Web site.

Because your comment will be made public, you are solely responsible for making sure that your comment does not include any sensitive personal information, like anyone's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, like medical records or other individually identifiable health information. In addition, do not include any “[t]rade secret or any commercial or financial information which . . . is privileged or confidential,” as discussed in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.

If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you have to follow the procedure explained in FTC Rule 4.9(c), 16 CFR 4.9(c).^[1] Your comment will be kept confidential only if the FTC General Counsel, in his or her sole discretion, grants your request in accordance with the law and the public interest.

Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at https://ftcpublic.commentworks.com/​ftc/​scistewartconsent by following the instructions on the web-based form. If this Notice appears at http://,www.regulations.gov/​#!home,, you also may file a comment through that Web site.

If you file your comment on paper, write “Service Corporation International and Stewart Enterprises, Inc.—Consent Agreement; File No. 131 0163” on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580. If possible, submit your paper comment to the Commission by courier or overnight service.

Visit the Commission Web site at http://www.ftc.gov to read this Notice and the news release describing it. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before January 22, 2014. You can find more information, including routine uses permitted by the Privacy Act, in the Commission's privacy policy, at http://www.ftc.gov/​ftc/​privacy.htm.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

The Federal Trade Commission (“Commission”) has accepted for public comment, subject to final approval, an Agreement Containing Consent Orders (“Consent Agreement”) from Service Corporation International (“SCI”) and Stewart Enterprises, Inc. (“Stewart”). The purpose of the proposed Consent Agreement is to remedy the anticompetitive effects that would otherwise result from SCI's acquisition of Stewart. Under the terms of the proposed Consent Agreement, SCI and Stewart are required to divest 53 funeral homes in 29 local funeral services markets and 38 cemeteries in 30 local cemetery markets to acquirers who receive the approval of the Commission. The proposed Consent Agreement also requires SCI and Stewart to divest all related assets and real property necessary to ensure that the buyer(s) of the divested facilities will be able to quickly and fully replicate the competition that would have been eliminated by the merger. Finally, the Commission, SCI, and Stewart have agreed to an Order to Hold Separate and Maintain Assets (“Hold Separate Order”) that requires SCI and Stewart to maintain and hold separate certain facilities to be divested pending their final divestiture pursuant to the Consent Agreement.

The proposed Consent Agreement has been placed on the public record for thirty days (“Public Comment Period”). During this period, interested persons can review the proposed Consent Agreement and file comments with respect to the competitive effects of the Merger and the proposed remedy. At the end of the Public Comment Period, the Commission will review and afford appropriate consideration to all comments filed. The Commission may then determine whether to modify the proposed Consent Agreement, issue the Consent Agreement as final without modifications, or withdraw the Consent Agreement in its entirety.

On May 29, 2013, SCI and Stewart executed a definitive merger agreement pursuant to which SCI agreed to acquire Stewart in an all-cash transaction valued at approximately $1.4 billion (the “Merger”). The Commission's complaint alleges that the proposed Merger, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, removing an actual, direct, and substantial competitor from 29 funeral services markets, and 30 cemetery services markets. The proposed Consent Agreement would remedy the alleged violations by requiring divestitures to replace the competition that otherwise would be lost in these markets as a result of the Merger.

II. The Parties

SCI is the largest funeral and cemetery services provider in North America. SCI owns and operates more than 1,449 funeral-services locations and 374 cemeteries (including 213 combined funeral-services/cemetery locations), and 100 crematories in 44 states and the District of Columbia. SCI's 2012 revenue from all operations totaled approximately $2.41 billion.

Stewart is the second largest funeral and cemetery services provider in the United States. Stewart owns and operates 217 funeral homes and 141 cemeteries in 24 states and Puerto Rico. For the 12 months ending October 31, 2013, Stewart's total revenues were approximately $524.1 million.

III. Funeral and Cemetery Services

SCI's proposed acquisition of Stewart presents substantial antitrust concerns in two relevant product markets: (1) Funeral services; and (2) cemetery services. Funeral services include all activities relating to the promotion, marketing, sale, and provision of funeral services and goods, including, but not limited to, goods and services used to remove, care for, and prepare bodies for burial. Funeral services do not include cremation services because consumers generally do not substitute cremation services for burial services based upon price. Since many consumers primarily choose their final disposition based on their personal or religious views, these consumers do not view cremation services as a viable substitute for funeral services. Thus, a hypothetical monopolist of funeral services could profitably impose a small but significant and non-transitory increase in price (“SSNIP”) because most consumers would not switch to cremation services. Further, the competitive conditions for cremation services are substantially different than for funeral services.

Cemetery services include all activities relating to the promotion, marketing, sale, and provision of property, goods, and services to provide for the disposition of human remains in a cemetery, whether by burial, entombment in a mausoleum or crypt, disposition in a niche, or scattering cremated remains on cemetery grounds.

In some local markets, certain funeral-service and cemetery-service locations cater to specific populations by focusing on the customs and rituals associated with one or more religious, ethnic, or cultural heritage groups. In such situations, the provision of funeral or cemetery services targeted to such populations may constitute distinct and relevant product markets. Thus, in Los Angeles, California, for example, the provision of funeral services to Catholic consumers constitutes a relevant product market in which to analyze the competitive effects of the Merger. Likewise, in South Dallas, Texas, the provision of cemetery services to the African-American community constitutes a relevant product market in which to analyze the competitive effects of the Merger.

The 29 funeral services markets and 30 cemetery services markets at issue in this transaction are relatively local in nature. Indeed, data analysis and evidence gathered from market participants indicate that purchasers of both “preneed” and “atneed” funeral and cemetery services typically choose a local funeral home or cemetery in order to make the memorial service, burial, and subsequent visitation more convenient.

The 29 geographic markets in which to analyze the effects of the Merger with respect to funeral services are: (1) Mobile, Alabama; (2) Auburn, California; (3) East Los Angeles County, California (Catholic); (4) Los Angeles (Long Beach), California (Catholic); (5) Los Angeles (San Fernando Valley), California (Catholic); (6) Palmdale/Lancaster, California; (7) Northern San Diego, California; (8) Southern and Eastern San Diego, California; (9) Clearwater, Florida; (10) Jacksonville, Florida; (11) Miami-Dade County (Homestead), Florida; (12) Miami-Dade County (Miami), Florida; (13) Ocala, Florida; (14) Orlando, Florida; (15) Port St. Lucie, Florida; (16) Tampa, Florida (Hispanic); (17) Overland Park, Kansas; (18) South Kansas City, Kansas/Missouri; (19) New Orleans, Louisiana; (20) West Jackson, Mississippi; (21) North Kansas City, Missouri; (22) New Bern, North Carolina; (23) Raleigh, North Carolina; (24) Columbia, South Carolina; (25) Nashville, Tennessee; (26) Dallas, Texas; (27) Southeast Fort Worth, Texas; (28) Arlington-Alexandria, Virginia; and (29) Washington, DC/Maryland suburbs (Jewish).

The 30 geographic markets in which to analyze the effects of the Merger with respect to cemetery services are: (1) South San Diego, California; (2) Jacksonville, Florida; (3) Miami-Dade County, Florida; (4) Ocala, Florida; (5) West Orlando, Florida; (6) Port St. Lucie, Florida; (7) Spring Hill/Hudson, Florida; (8) St. Petersburg/Largo, Florida; (9) Tampa, Florida; (10) Atlanta (Cobb County), Georgia; (11) Atlanta (Fairburn/College Park), Georgia; (12) Atlanta (Henry County), Georgia; (13) New Orleans, Louisiana; (14) Annapolis, Maryland; (15) Baltimore, Maryland; (16) North Kansas City, Missouri; (17) South Kansas City, Kansas/Missouri; (18) High Point, North Carolina; (19) Raleigh, North Carolina; (20) Philadelphia, Pennsylvania; (21) Greenville, South Carolina; (22) Kingsport, Tennessee; (23) Knoxville, Tennessee; (24) Dallas, Texas; (25) South Dallas, Texas (African American); (26) Southeast Fort Worth, Texas; (27) Houston, Texas; (28) Northwest Richmond, Virginia; (29) South Richmond, Virginia; and (30) Kearneysville, West Virginia.

Each of the relevant funeral and cemetery services markets is highly concentrated, and the proposed Merger would significantly increase market concentration and eliminate substantial direct competition between two significant funeral and cemetery services providers. Under the Herfindahl-Hirschman Index (“HHI”), which is the standard measure of market concentration under the 2010 Department of Justice and Federal Trade Commission Merger Guidelines, an acquisition is presumed to create or enhance market power or facilitate its exercise if it increases by more than 200 points and results in a post-acquisition HHI that exceeds 2,500 points. SCI's merger with Stewart creates market concentration levels well in excess of these thresholds in the local markets listed above.

The anticompetitive implications of such significant increases are reinforced by evidence of intense head-to-head competition that would be eliminated by the proposed Merger. This competition between SCI and Stewart benefits consumers in the form of lower prices, improved products, and better service. Left unremedied, the proposed Merger likely would cause anticompetitive harm by enabling SCI to profit by unilaterally raising the prices of funeral and cemetery services, as well as reducing its incentive to improve quality and provide better service.

The high levels of concentration also increase the likelihood of competitive harm through coordinated interaction. In several funeral and cemetery services markets, coordinated interaction or tacit collusion may be likely due to the transparency of important competitive information, high concentration, and relatively small number of competitors.

New entry is unlikely to deter or counteract the anticompetitive effects of the proposed Merger. Among other entry barriers, both heritage (the consumer's tendency to use the same funeral home or cemetery for multiple generations) and reputation pose substantial barriers to entrants attempting to establish new funeral-services locations. The availability of suitable land and local zoning, health, and environmental regulations significantly hinder the ability of firms to enter into new cemetery-services locations. As a result, new entry sufficient to achieve a significant market impact is unlikely to occur.

IV. The Proposed Consent Agreement

The proposed Consent Agreement remedies completely the anticompetitive effects of the Merger by requiring the divestiture of SCI or Stewart funeral homes, cemeteries, and related assets in each relevant geographic market to a Commission-approved buyer (or buyers) within 180 days of SCI acquiring Stewart. Specifically, the proposed Consent Agreement requires the divestiture of 53 funeral-services facilities and 38 cemeteries, as well as related equipment, customer and supplier contracts, commercial trade names, and real property in the funeral and cemetery services markets at issue in this transaction. The assets to be divested include all of the associated assets and real property necessary for a Commission-approved buyer to independently and effectively operate each facility. See Appendix A to the proposed Decision and Order for a complete list of the divestiture assets.

The proposed Consent Agreement contains several provisions designed to ensure that the divestitures are successful. First, the Commission will evaluate the suitability of the proposed purchasers of the divested assets to ensure that the competitive environment that would have existed but for the transaction is replicated by the required divestitures. If SCI fails to divest the assets within the 180 day time period to a Commission-approved buyer, the Consent Agreement permits the Commission to appoint a divestiture trustee to divest the assets. Second, SCI is required to provide transitional services to the Commission-approved acquirer. These transitional services will facilitate a smooth transition of the assets to the acquirer, and ensure continued and uninterrupted operation of the assets during the transition. Third, the Consent Agreement requires SCI to remove any contractual impediments that may deter the current employees of the divested facilities from accepting offers of employment from any Commission-approved acquirer and to obtain all consents necessary to transfer the required assets. The Agreement also appoints a Hold Separate Trustee to monitor SCI's compliance with the terms of the Agreement. Finally, the Commission will have an opportunity to review any attempt by SCI to acquire any funeral or cemetery services asset in any of the geographic markets at issue, as well as certain markets where any future acquisition by SCI would likely cause substantial competitive harm. This prior notice provision has a term of ten years.

The Hold Separate Order requires the parties to maintain the viability of the divestiture assets as competitive operations until each facility is transferred to a Commission-approved acquirer. After SCI acquires Stewart, the Hold Separate Order requires that SCI segregate the 91 locations to be divested separate and apart from SCI's own death services business, and maintain these assets as independent competitive enterprises pending divestiture. To facilitate this process, the Hold Separate Order allows Paul A. Houston, the proposed Hold Separate Trustee, to appoint one or more Hold Separate Managers to assist with the management the daily operations of the held separate businesses in an effort to ensure competition in the relevant geographic markets. Additionally, the Hold Separate Order obligates SCI to provide sufficient working capital to the held separate businesses and to provide continued support services as needed in the interim. Overall, the Hold Separate Order and the Consent Agreement are designed to safeguard competition in the provision of death care services in these markets immediately post-acquisition.

The sole purpose of this analysis is to facilitate public comment on the Consent Agreement. This analysis does not constitute an official interpretation of the Consent Agreement or modify its terms in any way.

By direction of the Commission.

Janice Podoll Frankle,

Acting Secretary.

Footnotes

1.  In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. See FTC Rule 4.9(c), 16 CFR 4.9(c).